Global equities soared on Tuesday following US inflation data coming in cooler than expected. Markets celebrated this news and and bet that the era of interest rate hikes for this Fed is over. They also pulled forward bets of when the Fed will first cut rates to the first half of next year.
US inflation slowed more than expected in October. The headline rate came in at 0% MoM (consensus 0.1%) and 3.2% YoY (consensus 3.3%). The core CPI measure which excludes volatile food and energy showed that CPI increased 0.2%, as a result of rising rent costs. Consensus for core CPI was 0.3%.
Fed chair Powell stressed last week that policymakers would not be “misled by a few good months of data”, and that they could tighten monetary policy further if necessary.
U.S. two-year yields, which reflect interest rate expectations, experienced a notable decline to two-week lows at 4.8318%, marking the most significant one-day drop since May 4. The decrease in yields had a substantial impact on the U.S. dollar index, causing it to fall by 1.47%. This depreciation in the dollar contributed to a 1.7% increase in the euro, pushing it to $1.0876.
The Israel-Hamas war turned investors risk-averse in October, but world stocks have recovered almost 5% so far this month as investors bet major central banks have ended a long run of rate hikes.